Baby boomers fascinate me. It's weird, I know, but it's true. My parents are baby boomers, baby boomers who waited a bit and had a family later in life, but baby boomers nonetheless. I find them fascinating as a generation of change, of wealth and of critical mass. By change I mean the social and cultural revolution that this generation brought upon the world, peace and love, women's rights, desegregation (in the US), rock'n'roll, the Beatles, Elvis, the Kennedys, Nixon, LSD, it's all part of their story. I may have a little bit of a bias on American baby boomers but most of these were global phenomena. Baby boomers are also incredibly wealthy (on average). They went through a period of thirty years of growth (interrupted by a couple of oil crises) and this means that expectation for achievement from a professional, financial and personal perspective were higher than they had ever been before. They've built wealth on property, and they've lived the dream of home ownership.
There are also a lot of them. By 2016, people 55 years old and over will represent a whopping 30% of the total Australian population (see paper by Amanda McCallum). In Australia, these figures are not attributable to natural population growth only, immigration plays a big part in this demographic shift. As baby boomers enter the later stages of their lives, what does this generation have in store for us? What are their expectations of family duties regarding taking care of them in their old age? What are their expectations of amenity and space? What is their expectation of digital connectivity and access to new technology?
I find this issue eminently interesting because who our 'elderly' are is changing. The elderly are not just generically elderly. My grandparents' generation went through War and food penury and they were shaped by that experience and the knowledge of how 'brittle' the world can be. But my parent's generation will be different. That I can assure you.
I was at dinner last night at a friend's house and they'd invited another friend of theirs who works in financial services for Aged Care providers in Australia. A casual conversation with this guy proved much more fruitful than I had bargained for. His business is essentially a financial advisory business coupled with a change management business that help Aged Care providers manage their liquidity and comply with new government regulation around the management of Aged Care bonds.
It's surprising but the Aged Care business has been largely unregulated in Australia. It is funded at a Federal level and contributions to individual facilities can add up to tens of millions of dollars a month. With the desire to push the budget into surplus over the next year, the Federal Government has been looking at more efficient ways of spending and at evaluating how the money they have put up is being used. This brought up the thorny issue that there was no regulation around the way Aged Care providers can invest or use the funds released as a bond when a new tenant arrives at a facility. Access to Aged Care can be quite dear, with some bonds amounting up to $AUD 800,000. This means providers are not only heavily subsidised but they also have a lovely cash-flow to play with. I am sure you can read between the lines and see that this has inevitably led to excesses where the bond funds have been invested quite creatively in private property, development ventures, and other high-yielding high-risk investments. And this was legal until recently. It's a whole new subprime crisis just waiting to happen.
The other confounding fact that I discovered is that only 7% of older Australians actually live in Aged Care. Contrary to my expectation, most elderly Australians live with their families, in family homes. And if the other 93% of elderly Australians were to suddenly require government funded Aged Care, it would leave a serious impact on the Treasurer's balance sheet. Also, most people who work in Aged Care are volunteers, further distancing the current business model of Aged Care from the reality of its labour costs.
In addition to this, many Aged Care facilities are going under. They're not up to scratch for what baby boomers will expect and therefore many will not pay for them. As discussed earlier, they have expectations around building quality standards, space and access to information such as Foxtel, internet access and 3G coverage. This is a classic case of where there is a mismatch between market supply and the demand. How can we re-design a market to make it more equitable?
As Bruce Mau says, markets are not natural spaces, they're designed. But we often assume that markets occur naturally. That supply magically organises itself in order to respond to demand. We all know too well that market failure (when supply does not meet demand or vice versa) is quite common. We also tend not to price in negative externalities, or positive externalities for that matter. For instance, the value to society that stay-at-home mums provide has never been quantified in economic terms. They provide a service to society through the education, minding and development of our children that has tremendous value, yet we leave it out of the economic value equation. Strange.
What is clear is that there has been little thought given to the way the current Aged Care market is designed. We're about to push through our largest demographic through a system we know is broken, and I don't think we're ready to deal with the consequences of that. In the meantime, the Federal Government will oscillate between re-regulation and de-regulation until they think they've got the incentives for private investment in Aged Care right.
I am not an idealist, but surely there are some things in life that are too important to just leave to the fate of laissez faire economics. When will we start seeing markets as a design problem?